Homebuilding pace slows in metro

Article by: Jim Buchta

Star Tribune

May 30, 2014 - 8:54 PM

Twin Cities homebuilders hit the pause button this month, but nearly halfway through the year construction is nearly on pace to match 2013.

During May, builders were issued 421 permits to build 519 units in the metro, according to the Builders Association of the Twin Cities. Permits were off 7 percent and planned units fell 33 percent compared with last year.

That steep decline in planned units was largely the result of fewer requests to build apartments (one permit can be pulled to build multiple units), but there also was a contraction in requests to build single-family houses.

“The housing recovery has not been able to get momentum yet this year, the incredibly bad winter weather slowed construction, financing is still tight for consumers — particularly first-time buyers,” said Shawn Nelson, president of the Builders Association of the Twin Cities.

So far this year, the industry is keeping pace with 2013. From January through May, builders were issued 1,855 permits for a total of 3,332 units – just a slight decline in permits, but an increase in new units.

On average, for example, apartments account for nearly half of all housing that gets built in the metro, but this past month multifamily housing represented only 20 percent of those planned units.

Though homebuilders are in a better position than they were three years ago, new home sales are being stifled by a decline in existing home sales. Closings compared with last year are down, largely because of an imbalance between supply and demand. With few options, many would-be sellers aren’t listing their homes. And that’s making it especially difficult for move-up buyers to sell their houses.

Because homebuilding is a seasonal, weather-dependent business, there is considerable volatility from month to month. During April, for example, permits to build single-family houses rose significantly over both the March and April 2013 levels.

In his second-quarter report earlier this month, Herb Tousley, director of the Shenehon Center for Real Estate at the University of St. Thomas, said he expected housing construction to rise “as homebuilders seek to make up for time lost due to harsh weather conditions in January and February,”

Brad Hunter, chief economist with Metrostudy, said that despite a dip in sales in recent months, demand for new homes is expected to rise. That’s based on increased foot traffic through builders’ models, which he says has been “extraordinarily strong.”

“Our new research shows that buyers are gradually moving off the fence,” he said. “Now, at last, builders are seeing a higher percentage of people who are taking the plunge, and buying a new home. “